CVR Energy, Inc. (CVI) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us and welcome to CVR Energy's Third Quarter 26 Earnings Call. After today's prepared remarks, we will host a Q&A session. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Richard J. Roberts, Chief Financial Officer. Richard? Please go ahead.

Richard J. Roberts Jr.: Thank you. Good morning, everyone. We very much appreciate you joining us this morning. For our CVR Energy third quarter 26 earnings call. With me today are Dane J. Neumann, our Chief Executive Officer Mike Wright, our chief operating officer and other members of management. Today, we announced that our agreement to acquire 2 refineries from Marathon Petroleum, We have posted a presentation on the Investor Relations section of our website. We will refer to that presentation during our prepared remarks. Prior to discussing our 26 third quarter results, let me remind you that this conference call may contain forward looking statements as that term is defined under federal securities laws. For this purpose, statements made during this call that are not statements of historical facts may be deemed to be forward looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward looking statements. We undertake no obligation to publicly update any forward looking statements whether as a result of new information, future events, or otherwise. Except to the extent required by law. This call also includes various non GAAP financial measures. The disclosures related to such non GAAP measures including reconciliation to the most directly comparable GAAP financial measures, are included in our 2026 third quarter earnings release that we filed with the SEC. on Form 10-Q for the period and will be discussed during the call. In addition, our remarks today include forward looking statements regarding the proposed acquisition, including its expected benefits, synergies, accretion, financing, and timing to close. Statements are subject to risks and uncertainties, including the satisfaction of customary closing conditions and regulatory requirements our ability to finance the transaction, and to integrate the acquired assets, the other factors described in our press release and SEC filings. With that said, I will turn the call over to Dane.

Dane J. Neumann: Thank you, Richard. Good morning, everyone, and thank you for joining our earnings call. This is a historic day for CVR Energy as we announced the largest acquisition in the company's history along with a record earnings quarter on both a consolidated basis and in the refining segment. We are also pleased to announce a third quarter 2026 dividend of $0.10 per share. We believe current market conditions, along with the platform expansion opportunities afforded by this transaction generate tailwinds for our business that should create tremendous value for our shareholders. Before Richard takes you through the quarter, I want to spend a few minutes on the news we announced this morning. Starting on Slide 2 of the presentation, CVR Energy has entered into a definitive agreement to acquire Marathon's St. Paul Park, Minnesota and Mandan, North Dakota refineries along with their associated marketing business and certain logistics assets. For total consideration of approximately 4.2 billion subject to certain customary closing adjustments. The 2 refineries have a combined nameplate crude capacity of 177 thousand barrels per day with St. Paul Park at 105 thousand and Mandan at 72 thousand. Combined with Coffeyville and Wynnewood, our crude processing capacity would increase from approximately 207 thousand to approximately 384 thousand barrels per day. This is a transformative acquisition for CVI Energy. Nearly doubling our refining capacity, enhancing our geographic scope, and diversifying our distribution footprint through a highly complementary marketing and logistics platform. The transaction implies an asset acquisition multiple of less than 3.5x management's estimate of 2026 EBITDA for the acquired business. For the 9 months ended September 30, 2026, on a pro forma basis giving effect to the transaction, CVR's EBITDA increased from approximately $900 million on a standalone basis to approximately 2 billion and diluted earnings per share increased from $3.73 on a stand alone basis to $7.67. Further, we expect the transaction to be more than 50% accretive to CVR's earnings and free cash flow in the first full year after closing. We intend to fund the transaction with a mix of common equity, cash, and debt. And we plan to redeem our outstanding 2028 senior notes. The equity portion is intended to be funded by a large common equity investment from Trafigura, along with a 500 million equity commitment from IEP and approximately 650 million of cash from the CVR balance sheet. We have 2.5 billion of committed bridge financing from our banks, which we expect to replace with syndicated secured debt financing prior to closing. And we expect to draw $300 million on an upsized $1.1 billion ABL facility. We also expect to equally and ratably secure 2020 and 2030 senior notes upon the completion of the permanent financing. Pro forma for the transaction, we expect total debt excluding CVR Partners, of approximately $3.8 billion at closing, less than 2x our estimated 26 consolidated pro forma EBITDA. We remain committed to a strong balance sheet. And we intend to capitalize on the above mid cycle margin environment to further reduce leverage. As a potential transaction is absorbed, we also see potential to substantially improve our corporate credit rating profile. The transaction has been unanimously approved by our board of directors and is expected to close by year-end 2026, subject to customary closing conditions and regulatory clearance including expiration of the waiting period under the Hart Scott Rodino Act. Turning to Slide 3. This is a unique opportunity for us to acquire high quality geographically advantaged assets from an established operator at a compelling valuation. This transaction would expand our footprint to new geographic areas across the Upper Midwest and Northern Great Plains regions, broadening our exposure to regional transportation fuel demand, and expanding our presence across the broader PADD II region. From an operations perspective, these assets are similar to what we own and operate today. Medium sized inland refineries with advantaged crude access via and Canadian crude oil processing, They are also well maintained assets supported by strong historical investment by Marathon, that drove average utilization levels over the past 5 years in the high 90s. The transaction would include Marathon's associated marketing business. Up to 590 branded locations across the Upper Midwest, and Northern Great Plains regions and long standing relationships with strategic counterparties. It gives us a diversified distribution mix across gasoline, ultra low sulfur diesel, jet fuel, and asphalt in new geographies through a combination of local rack sales, and wholesale channels, and a platform for potential expansion into our existing footprint. The business also has high blending capacity, which would increase our internal RIN generation capability and reduce some of our reliance on third party RIN purchases. Potentially further improving the overall RIN exposure of the company on a consolidated basis. I would also note that Mandan has received a small refinery exemption for 50% of their 2023, 2024, and 2025 obligations. Additionally, a larger, more diversified asset base would support more durable free cash flow through the cycle. Enhanced balance sheet flexibility, more sustainable capital returns. This should also mitigate the volatility inherent in our smaller existing system. We expect to see approximately $70 million cost and operational synergies on an annual run rate basis. Ultimately, we believe a larger platform improves our positioning for future growth supported by a larger and more diversified shareholder base. Turning to Slide 5. We believe this transaction comes at an attractive point in the cycle, a compelling forward margin environment. The ongoing conflicts in Russia, Ukraine, and The Middle East continue to drive volatility across crude oil and refined product markets. Disrupted shipping through the Strait Of Hormuz combined with damage to refineries in The Middle East and Russia continues to constrain global refined product supply. Even if an effective reopening of the Strait eases crude supply constraints. Believe refined product prices could stay elevated for longer as damaged refineries must be repaired and global inventories rebuilt. We think global supply dislocations in historic low inventory levels support a higher than mid cycle margin environment for at least the next 12 to 24 months. Looking at The US, the domestic refining fleet ran hard in the third quarter as companies deferred maintenance and maximize throughput volumes to keep product supply flowing to meet the needs of consumers. US refinery utilization averaged 96% in the quarter, well above the 5 year average of 92% for the same time period. Despite the high utilization, refined product inventories have continued to decline due to resilient demand trends and increased refined product exports. Domestic gasoline inventories are currently 5% below the 5 year average, distillate inventories are 9% below the 5 year average. Exports of gasoline and diesel from The US averaged 2.9 million barrels per day for the third quarter, an increase of nearly 20% from the third quarter of 2020. Slide 6 shows how PADD II refining dynamics reflect similar trends with supply demand fundamentals in widening light heavy differentials supporting margins in the region. Before we speak to our third quarter results, I want to recognize the employees of St. Paul Park and Mandan, who have built a long record of safe and reliable operations along with the team at CVR Energy that has worked tirelessly on this transaction. We look forward to welcoming these new employees to CVR Energy following our closing. And our focus between now and closing will be a seamless transition for our new colleagues and customers. Now let me turn the call over to Richard to discuss our third quarter results.

Richard J. Roberts Jr.: Thank you, Dane, and good morning, everyone. Turning to our third quarter results highlighted on Slide 10. The third quarter of 2020 6, our consolidated net income was $563 million Earnings per share was $5.67. And EBITDA was $804 million third quarter results include a favorable change in our RFS liability of $314 million favorable inventory valuation impacts of $35 million, and unrealized derivative losses of $127 million Excluding the above mentioned items, adjusted EBITDA for the quarter was $582 million and earnings per share was $4. Adjusted EBITDA on the Petroleum segment was $565 million for the third quarter compared to $120 million for the third quarter of 2020 5. Elevated group spreads and higher group volumes drove the majority of the increase from the prior year period offset somewhat by higher RIN expenses and realized derivative losses. Combined total throughput for the third quarter of 2020 was approximately 228 thousand barrels per day. Crude utilization for the quarter was approximately 105% of nameplate capacity, and light product yield was 93% on total throughput volumes. The Group 3-2-1 crack spread averaged $68.50 per barrel for the third quarter of 2020 6. Compared to $25.94 per barrel for the third quarter of 2020 5. Our third quarter realized margin adjusted for the change in RFS liability inventory valuation, and unrealized derivative losses was $34.97 per barrel representing a 51% capture rate on the group 3-2-1 benchmark. RIN price increased significantly from third quarter 2025 levels, up over 125% to average over $14 per barrel for the third quarter of 2020 6. Net RIN expense for the quarter, excluding the change in RFS liability, was $235 million or $11.20 per barrel, which negatively impacted our capture rate for the quarter by approximately 16%. The estimated accrued RFS obligation on the balance sheet was $230 million at September 30, representing 113 million RINs to market at an average price of $2.04. Were pleased with the EPA's decision in August to grant Wynnewood Refining Company a full SRE for 2025 obligation, which reduced the RFS liability on the balance sheet by $253 million. We appreciate EPA's recognition that Wynnewood Refining Company is disproportionately, economically, harmed by the RFS and deserves full relief. However, exorbitant cost of RINs continues to disproportionately harm small and merchant refineries like ours, along with American consumers, as RINs currently represent roughly $0.28 of every gallon at the pump. If the president wants to lower the price of fuel today, he should pull the only lever he can that does not need an act of congress. Exercise of the EPA administrator's existing RFS waiver authority. Third quarter 26 results included derivative losses totaling $259 million comprised of a $133 million realized loss and a $127 million unrealized loss. For the fourth quarter of 2026, we have approximately 2.3 million barrels of diesel hedged, with a total notional value of approximately $93 million. For 2027, we have approximately 3.2 million barrels of diesel hedged fairly ratably across the year. Direct operating expenses in the petroleum segment were $6.15 per barrel for the third quarter, compared to $5.69 per barrel in the third quarter of 2020 5. The increase in direct operating expenses per barrel was primarily due to increased personnel expense largely due to share based compensation. Adjusted EBITDA in the Fertilizer segment was $20 million for the third quarter, compared to $71 million for the prior year period. Our loan utilization rate was 80%, which was impacted by the plant turnaround at East Dubuque during the quarter. The board of directors at CVR Partners general partner declared a distribution of $1.79 per common unit for the third quarter of 2020 6. As CVR Energy owns approximately 37% of CVR Partners common units, we will receive a proportionate cash distribution approximately $7 million. Cash flow from operations for the third quarter of 2020 6 was $655 million, and free cash flow was $593 million. Significant uses of cash in the quarter included $61 million of capital spending, $46 million of cash interest, $41 million paid for the noncontrolling interest portion of the CVR Partners second quarter 26 distribution. $10 million for dividends. Total consolidated capital spending on an accrual basis was $58 million which included $22 million in the petroleum segment and $35 million in the fertilizer segment. The full year 2026, we estimate total consolidated capital spending to be approximately 200 million to $240 million. Turning to the balance sheet. We ended the quarter with a consolidated cash balance of 1.3 billion which includes $158 million of cash in the fertilizer segment. Total liquidity as of September 30 excluding CVR Partners, approximately 1.7 billion, was comprised primarily of 1.1 billion of cash and availability under the ABL facility of 530 million. Looking ahead to the fourth quarter of 2026 and excluding the acquired Marathon assets, for our petroleum segment, we estimate total throughputs to be approximately 200 thousand to 225 thousand thousand barrels per day operating expenses to range between $115 million to $125 million, total capital spending to be between 45 million and $55 million. For the fertilizer segment, we estimate our ammonia utilization rate to be between 88% to 93%. Which will be impacted by the completion of the East Dubuque turnaround in October. Estimate direct operating expenses excluding inventory and turnaround impacts, to be between 58 million and $63 million turnaround expenses to be between 4 million and $6 million and total capital spending to be between 26 million and $34 million. With that, I will turn it back to you.

Dane J. Neumann: Thank you, Richard. In summary, we delivered a great quarter in refining, and we remain constructive on the outlook for both segments. I would like to thank our employees for all their hard work during the quarter. Delivering crude utilization of 105% completing the East Dubuque turnaround on the revised schedule. Our third quarter results show the benefits of focusing on safe and reliable operations. We continue to believe this upcycle and refining could persist through 2027, and today's announcement is a clear example of our focus on pursuing accretive growth opportunities intended to add value for our shareholders. We have approached the Marathon acquisition with discipline. We underwrote it on historical mid cycle earnings rather than today's elevated margins, and at less than 3.5x our estimates of 2026 EBITDA, that includes both refining and marketing, consider the transaction to be extremely compelling for CVR Energy through the cycle with the current environment as upside. Subject to closing, we look forward to welcoming the St. Paul Park and Mandan employees to CVR Energy. With that, operator, we are ready for questions.

Operator: We will now begin the Q&A session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Blair with TPH. Your line is open. Please go ahead.

Matthew Blair: Hi. Thanks, and good morning, and congrats on strong quarter. I think you mentioned at the end that this transaction was predicated on mid cycle economics. Maybe you could talk a little bit about what your assumptions are for mid cycle. We look back, looks like the mid con segment for MPC made about 5 to $6 a barrel in 2024 and in 2025. Which I think if I am doing the math correctly, would put the EBITDA around $400 million. Does that seem reasonable for a mid cycle environment? Or are you projecting something higher? Thank you.

Dane J. Neumann: Hey, Matthew. You know, the idea of mid cycle and refining is something that we, talk about every quarter. I would say from a historical basis, not taking into account any of the changes in refining fundamentals recently, Looking back over, you know, a 10 year period, that is typically the way we view mid cycle. We look at a 10 year period of cracks, adjust that for the RIN components. The RVO has been so volatile. And then gross that up with the current RIN price on a go-forward basis. we get to a number probably close to double what you threw out for historical mid cycle basis on these assets. You know, I think our view is that given all the changes in the global refining supply demand picture recently, the go forward mid cycle is probably higher than the historical mid cycle. But I would point out too that negotiations on these assets started before the Iran war kicked off. So all of the upside that we have seen in the market here recently and that we are looking forward to for the next couple years most likely, was not factored into the valuation that we had here.

Matthew Blair: Okay. Sounds good. And then could you talk a little bit about the crude slate and the product exposure for the acquired refineries. Think I remember the St. Paul Park refinery running about 1 third WCS And so I guess that would put the total crude slate for the package at maybe roughly 20% WCS, 80% Bakken. Is that reasonable? And then on the product exposure, I thought that these refineries also sold into the MidCon Group 3 product market, like your existing system. So what is the good approximation for the split between MidCon and Midwest exposure for the acquired assets on the product side? Thank you.

Dane J. Neumann: Yeah. Matthew, this is Dane. So total crew throughput for the acquired assets, let's call it around 175 thousand barrels a day. Bakken is about 126 thousand of that, just approximately. And then total Canadian, just under 50 thousand barrels. And, half of that Canadian would be, WCS or heavy. So. And then on the call it, product side, these assets actually with their wholesale marketing, and strong, call it, presence of distribution in the, call it, the northern part of the Mid Con. there is really, historically, about 15% of their product that ends up kind of in that bulk market. So substantially lower than ours, and they have significantly more advantaged product placement. You know? North Dakota, obviously, the only refinery-- or sorry, Mandan's the only refinery in North Dakota. And can place the majority of its product in relatively local areas. And then St. Paul Park has a really attractive metropolitan area that allows it to place the majority of its product over the rack. So from a marketing perspective, substantially different than what we have in our existing business today, and do not really see a significant overlap or bulk market volumes.

Operator: As a reminder, if you would like to ask a question, press *1 again. To withdraw your question, press 1 again.

Analyst: Your next question comes from the line of Manav Gupta with Goldman Sachs. Your line is open. Please go ahead. Yeah. Good morning, team, and congrats on the transaction. I had a couple, and then I might queue back in here, which is the first is just around Mandan. Historically, this has been eligible for a small refinery exemption Can you remind us that, I believe, has been more partial versus full, but help us size what that is been in terms of a cash flow tailwind and how did that feed into the way that you thought about valuing these assets?

Dane J. Neumann: Yeah. Thanks, Manav. Yeah. So Mandan has received 50% waivers for the 2023, 2024, 2025 period. The In terms of our evaluation, we actually did not apply any waivers into the go forward business, and any waiver received would be upside from our transaction valuation. that is helpful. And just the follow-up is how would you weigh this relative to the path that you were on around deleveraging? Because, you know, you had gotten the balance sheet back into a good place and at the precipice of reinstating the dividend So how do you think about this relative to return of capital? Yeah. So, Manav, for us, you know, I think the we have all talked a long time that CVR just kind of as a standalone business always suffered from lack of geography, lack of scale. Lack of really controlling the barrel downstream of this. So as this opportunity came up and again, as Richard pointed out, we believe in an elevated period of time, of cracks here, for the next year or so or further. You know, taking a little excess leverage and then using the incremental tailwinds we have in the market to get us back to a more normalized level across the entire fleet. Became the more accretive option for us. So, while there is a little bit of excess leverage, if you think about a mid cycle level, on a, call it, LTM or on a 2026 estimate or what we believe 2027 will look like. Seems like a decent leverage target, but we want to continue to work that down over time.

Operator: Okay. If you would like to ask a question, please press *1. To withdraw your question, press *1 again. Your next question comes from the line of Manav Gupta with Goldman Sachs. Your line is open. Please go ahead.

Analyst: Okay. I will queue back in quick. Hey. So team, can you spend a little bit more time talking about the retail side of the business, the marketing side of the business, a lot of us cover Northern Tier back in the day, and I know that was business they were looking to grow. But just give us a mark to market on that. On those assets and how we should be thinking about this.

Dane J. Neumann: Yeah. So just to clarify, it is not a retail business in that we do not own the retail stores. it is more like a marketing-- Yeah. Sorry. So for 1, that is a business we do not have today in our existing assets and the, you know, Southern MidCon and Group 3. So there is some margin that we are giving up between where we are selling in the bulk market and where that product ends up to the ultimate retailer. So by controlling that piece of the value chain, there is some incremental margin that we get to capture there. In addition to that or as part of that, which is actually a pretty meaningful piece, is the RIN generation. That comes along with controlling that piece of the business along with the significant rack sales relative to what we have today. So I think we mentioned in the prepared remarks, but on a go-forward basis, even not giving credit to the SREs that we have gotten at Wynnewood and that Mandan's received, our consolidated RIN obligation would go down quite a bit just from the additional blending. And if you layer in those potential additional SRE benefits, it goes even lower. So incremental margin there just on controlling more of the barrel and where it goes. On top of the additional RIN generation.

Analyst: Thanks, Neil.

Operator: Your next question comes from the line of Matthew Blair with TPH. Your line is open. Please go ahead.

Matthew Blair: Long time. No talk. Thanks for taking the follow-up. I guess just to clarify on the RIN exposure. Are you saying that you can overblend on these assets that you actually are, I guess, net long RINs on the acquired assets or maybe I am misinterpreting here.

Dane J. Neumann: Yeah. No. No, Matthew. It would not be a net long position. The relative blending capacity of the acquired assets is significantly higher than the relative blending capacity of the CVR assets you know, predominantly, the same ballpark, with that local rack supplying, a substantial portion of their volumes. What the what the RIN exposure comment is, as it relates to the weighted average across the 2 facilities, our percentage will come down in terms of open exposure pretty dramatically.

Matthew Blair: Ah, okay. Thank you. And then are you expecting any notable capital investments with this acquisition? You know, just thinking that St. Paul Park runs a fair amount of WCS, but I believe it still does not have a coker. Would you consider putting in a coker? Any other notable capital investments?

Michael H. Wright Jr.: Thanks, Matt. I will take that 1. Yeah. We would consider it. I think that there is-- you know, really, that is a pretty heavy lift in terms of capital dollars. And really where would that-- how much more of the value would we capture in that mode You know, possibly, we do have the benefit of having a gas-fired fertilizer business right next door and get a decent net back, and that is a good synergy, and we probably do not have that as much. Pretty big transportation to get it from Saint Paul down. There is capital that is planned, we put all of the capital that was currently planned with Marathon into our future forecast. And we expect to complete those. They have done a really good job of maintaining those assets. And do not see really a lot of makeup capital like you see in some other assets that go on the market. So excited about these assets that are well-maintained and reliable. So look forward to working with them. And, really, it is more about successful integration than it is trying to rekit it right away.

Matthew Blair: Sounds good. And then finally, is there any sort of earn out on the transaction?

Dane J. Neumann: No. No, sir. Thank you. You got it, man.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Dane for closing remarks.

Dane J. Neumann: All right. Again, I would like to thank you all for your interest in CVR Energy and our employees for their hard work and commitment towards safe, reliable, and environmentally responsible operations. And we look forward to reviewing our fourth quarter 26 results during our call in a couple of months. Have a safe day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.